London-based Orion Capital Managers is spearheading a new wave of opportunistic investment by pan-European boutique firms after raising €1.3 bn at end-2013.
London-based Orion Capital Managers is spearheading a new wave of opportunistic investment by pan-European boutique firms after raising €1.3 bn at end-2013.
The number of larger or mid-sized opportunistic funds raised by home-grown players has been very thin in recent years. Another notable exception is UK-based peer Tristan Capital Partners which recently capped the final equity raise on its EPISO 3 value-add/opportunistic fund just short of the €1 bn mark. Tristan’s new value-add/opportunistic fund generated €950 mln, exceeding its original fundraising target by 25%. Europa Capital and Resolution Property are likewise in the market for opportunistic investment, but their targets are more modest. According to insiders, ex-Carlyle executives Eric Sasson and Robert Hodges are also plotting a return to the European stage with their own European opportunistic vehicle via their new company Redtree Capital.
In recent years, opportunistic investment in Europe has been driven primarily by US capital with the likes of Blackstone, Lone Star and Starwood leading the push. Blind pool opportunistic funds fell out of favour following the outbreak of the global financial crisis with some players seeing their funds virtually wiped out after massive capital losses. US private equity player Blackstone is one of the few big fund players that has stayed the course globally in recent years with a string of mega multi-billion euro vehicles in this segment. Its latest fund targeting Europe - Blackstone Real Estate Partners Europe IV - has a target size of €5 bn. Major US opportunistic investors already active in the European market include Cerberus, Apollo Real Estate, Pramerica, TPG and Heitman. Market watchers expect other US-based players such as BlackRock - which is now active in Europe via MGPA - Carlyle, LaSalle Investment Management and Cornerstone to make a move in this direction in the near future.
Despite the increase in initiatives and the entry of hedge funds and financial players like Pimco, the opportunistic real estate arena in Europe is currently undercapitalised given the scale of the distress in the region, claims Joe Valente, head of global research at JP Morgan Asset Management. ‘The degree to which the opportunistic segment of the market remains under-capitalised in Europe is quite extraordinary given the set of economic and market circumstances that have come together.’
Citing a study by EREI, Valente pointed out that there are currently 26 opportunistic players in Europe which together have raised about €14 bn. ‘Let us assume that they are all equally successful with leverage, say 60% on average. This implies a total firepower of around €20 bn. That is €20 bn chasing an investment opportunity of around €250 bn!' The €14bn which opportunistic funds are looking to raise in Europe also pales into insignificance compared to the €84 bn currently targeted for core funds in Europe, he added. ‘And that is a segment of the market which is already fully priced.'
